Uncertainty Reduction Approaches,Uncertainty Coping Approaches,and Process Performance in Financial Services

Developing a better understanding of the impact of uncertainty on process performance has been recognized as an important research opportunity in service design ( Hill, et al., 2002 ). Within this general research stream, our study focuses on the question of what managers can do to most effectively address operational uncertainty and mitigate its negative effects. To begin to address this question, we report on an exploratory study using a sample of professionals in the financial‐services industry who acted as informants on 108 financial‐services processes. These professionals were sampled from a population of graduates of a university in the northeastern region of the United States who were employed in the financial‐services industry. Based on these processes, we empirically examine the relationship between responses to operational uncertainty and process performance after controlling for customer mix, other uncertainty sources, and process type characteristics. Our findings suggest that process improvement—an uncertainty reduction approach related to the internal functioning of the process—as well as several uncertainty coping approaches are associated with better performing processes. However, uncertainty reduction approaches related to customer involvement with, and demands on, the process are not associated with better performing processes. We discuss the implications of our findings for determining what actions managers can take to reduce the negative performance effects of operational uncertainty and how managers can decide which of these actions to take. We conclude with a discussion of the limitations of our study.     

Operations in Financial Services—An Overview

We provide an overview of the state of the art in research on operations in financial services. We start by highlighting a number of specific operational features that differentiate financial services from other service industries, and discuss how these features affect the modeling of financial services. We then consider in more detail the various different research areas in financial services, namely systems design, performance analysis and productivity, forecasting, inventory and cash management, waiting line analysis for capacity planning, personnel scheduling, operational risk management, and pricing and revenue management. In the last section, we describe the most promising research directions for the near future.     

Dynamic Capability Building in Service Value Networks for Achieving Service Innovation

Service organizations increasingly create new service offerings that are the result of collaborative arrangements operating on a value network level. This leads to the notion of “elevated service offerings,” our definition of service innovation, implying new or enhanced service offerings that can only be eventuated as a result of partnering, and one that could not be delivered on individual organizational merits. Using empirical data from a large telecommunications company, we demonstrate through structural equation modeling (SEM) that higher‐order dynamic capabilities in services are generated as a result of collaboration between stakeholders. Furthermore, it is through collaboration and education of the stakeholders that additional higher‐order capabilities emerge (customer engagement [CuE], collaborative agility [CA], entrepreneurial alertness [EA], and collaborative innovative capacity), all of which influence the service innovation outcome. Our study also reveals empirical evidence for an ongoing process of continuous dynamic capability building in accordance with the changing dynamics of business. Managers of service organizations should recognize the potential embedded in these higher‐order skill sets, starting from collaboration, learning, and management of creative ideas for both strategic and operational benefits. Moreover, the capabilities of CA, EA, and CuE are even more important in managing the flexibility, timely delivery, and reliability of service offerings. Managers should take measures to inculcate, promote, and manage these dynamic capability skill sets to foster innovation in services.     

The Influence of Service Orientation on B2B e‐Service Capabilities: An Empirical Investigation

E‐Services, or the company's portfolio of service offerings available to its customers through the Internet, are an emerging area of interest to operations management. Yet little is known about the operations and capabilities needed for provision of business‐to‐business (B2B) e‐services. This paper aims to make a contribution toward closing this gap. First, we develop a new construct of B2B e‐service capability, a term that captures a generic set of five interrelated and complementary dimensions: (1) e‐service recovery, (2) e‐customization, (3) ease of navigation, (4) service portfolio comprehensiveness, and (5) information richness. These combined operational abilities are associated with B2B service delivery, including its portal design, technology architecture, and mix of product and service offerings. They are posited to be necessary for delivering effective B2B e‐services. We also argue that, both service orientation (SO) and customer receptivity to technology, influence B2B e‐service capability. We empirically test a path model using structural equation modeling on a sample of 181 businesses that have deployed B2B e‐services. We find that the influence of SO on performance is not direct but rather mediated by the e‐service capability, a finding that holds for both goods producers and service providers. We suggest that a firm's SO may mitigate industrial customers' resistance toward conducting business online.     

Bridging the Healthcare Access Divide: A Strategic Planning Model for Rural Telemedicine Network

Balancing access to healthcare and sustaining operational efficiency is a major issue in strategic planning of rural healthcare delivery systems. In this regard, telemedicine is being adopted as a versatile and low cost mechanism for delivering rural healthcare. This article presents a strategic planning model that incorporates different operational and service elements of the rural telemedicine healthcare network. Real‐world data from the rural Black‐belt region in the United States are used in a case study. A novel statistical approach based on decision trees and logistic regression is used to estimate demand of healthcare at the county level. Key issues such as the location of telemedicine health centers, coverage of health services, configuration of medical equipment, and patient travel policies are explored in light of patient demographics, scale of health coverage, and disease prevalence patterns. Results indicate that telemedicine networks can effectively improve healthcare services in rural areas with requisite operational efficiency.     

Pricing and Operational Performance in Discretionary Services

In many services, for example, website or landscape design, the value or quality derived by a customer depends upon the service time, and this valuation differs across customers. Customers procure the service based on the expected value to be delivered, prices charged, and the timeliness of service. We investigate the performance of the optimal pricing scheme as well as two commonly used pricing schemes (fixed fee and time‐based pricing) for such services on important dimensions such as revenue, demand served, and utilization. We propose a novel model that captures the above features and wherein both service rate and demand are endogenous and functions of the pricing scheme. In particular, service time is an outcome of the pricing scheme adopted and the heterogeneous valuations of customers, unlike in the queueing‐based pricing literature. We find that the service system may benefit from a greater variance in consumer valuations, and the performance of pricing schemes is impacted by the shape of the distribution of customers' valuation of service time and the responsiveness desired by customers. Both the fixed fee and time‐based schemes do well relative to the optimal pricing scheme in terms of revenue in many plausible scenarios, but there are substantial differences between the pricing schemes in some important operational metrics. For instance, the fixed fee scheme serves more customers and has higher utilization than the time‐based scheme. We also explore variants of the fixed and time‐based schemes that have better revenue performance and show that the two‐part tariff which is a combination of fixed and time‐based pricing can do as well as the optimal scheme in terms of revenue.     

Optimal Configuration of a Service Delivery Network: An Application to a Financial Services Provider

Driven by market pressures, financial service firms are increasingly partnering with independent vendors to create service networks that deliver greater profits while ensuring high service quality. In the management of call center networks, these partnerships are common and form an integral part of the customer care and marketing strategies in the financial services industry. For a financial services firm, configuring such a call center service network entails determining which partners to select and how to distribute service requests among vendors, while incorporating their capabilities, costs, and revenue‐generating abilities. Motivated by a problem facing a Fortune 500 financial services provider, we develop and apply a novel mixed integer programming model for the service network configuration problem. Our tactical decision support model effectively accounts for the firm's costs by capturing the impact of service requirements on vendor staffing levels and seat requirements, and permits imposing call routing preferences and auxiliary service costs. We implemented the model and applied it to data from an industry partner. Results suggest that our approach can generate considerable cost savings and substantial additional revenues, while ensuring high service quality. Results based on test instances demonstrate similar savings and outperform two rule‐based methods for vendor assignment.     

Why Doesn't Technology Flow From Rich to Poor Countries?

What is the role of a country's financial system in determining technology adoption? To examine this, a dynamic contract model is embedded into a general equilibrium setting with competitive intermediation. The terms of finance are dictated by an intermediary's ability to monitor and control a firm's cash flow, in conjunction with the structure of the technology that the firm adopts. It is not always profitable to finance promising technologies. A quantitative illustration is presented where financial frictions induce entrepreneurs in India and Mexico to adopt less‐promising ventures than in the United States, despite lower input prices.     

Dynamic Pricing in e‐Services under Demand Uncertainty

High volatility of the e‐services market, due to increasing competition, low life cycle of products, and easy availability of information about competing service offerings to customers, makes the demand for service offerings quite uncertain. Revenue management in such markets calls for real‐time techniques to learn the demand and its dependence on both the price and the service level associated with the service offering. We assume firms reply on exploratory approaches for demand estimation, in which firms experiment with different service offerings in order to simultaneously learn the demand while doing business. Such exploration and learning process can be costly without supervision. As reported by Rothschild (Journal of Economic Theory, 9 185‐202, 1974), traditional Bayesian dynamic control approaches may conclude with suboptimal offerings. We propose a novel demand learning approach that is guaranteed to converge to the optimal offering. The approach combines simulated annealing algorithm with Bayesian learning. We further present intelligent techniques that adaptively reduce the effort of exploration on suboptimal service offerings so as to improve the long‐run average profit.     

Financial literacy and its influence on internet banking behavior

This paper presents the survey results for financial literacy among Cypriot adults and reports their financial aptitude and behaviour. Additionally, it investigates for the first time the implications of financial literacy on respondents’ usage of digital financial services, particularly internet banking (i-banking). The focus is on Cyprus, a country that experienced an unprecedented financial crisis in 2013 that resulted in a bail-in and an enormous subsequent shrinkage of the banking sector. Cypriot consumers face an ever-increasing need for financial sophistication to effectively utilise and manage digital banking services. Neverthless, financial literacy is still low in Cyprus, whereby only 37.33% of survey respondents showed proficiency in financial knowledge. The findings indicate that there is a statistically positive relationship between the levels of financial knowledge and the frequency of i-banking use. More importantly, financially illiterate consumers appear to report far more often than their financially literate peers the lack of trust in i-banking, as well as a lack of self-confidence in financial and digital skills as the main reasons for not using this service. The findings highlight the interplay between financial literacy and digital proficiency, and their implication on individuals’ use of i-banking services.     

Strategic Design Responsiveness: An Empirical Analysis of US Retail Store Networks

This study uses a service operations management (SOM) strategy lens to investigate chain store retailers' strategic design responsiveness (SDR)—a term that captures the degree to which retailers dynamically coordinate investments in human and structural capital with the complexity of their service and product offerings. Labor force and physical capital are respectively used as proxies for investments in human capital and structural capital, whereas gross margins are proxies for product/service offering complexity. Consequently, SDR broadly reflects three salient complementary choices of SOM design strategy. We test the effects of “brick and mortar” chain store retailers' SDR on current and future firm performance using publically available panel data collected from Compustat and the University of Michigan American Customer Satisfaction Index databases for the period 1996–2011. We find that retailers that fail to keep pace with investments in both structural and human capital exhibit short‐term financial benefits, but have worse ongoing operational performance. These findings corroborate the importance of managers strategically maintaining the complementarity of design‐related choices for improving and maintaining business performance.     

Foundations and Implications of a Proposed Unified Services Theory

Diverse businesses, such as garbage collection, retail banking, and management consulting are often tied together under the heading of “services”, based on little more than a perception that they are intangible and do not manufacture anything. Such definitions inadequately identify managerial and operational implications common among, and unique to, services. We present a “Unified Services Theory” (UST) to clearly delineate service processes from non‐service processes and to identify key commonalities across seemingly disparate service businesses. The UST defines a service production process as one that relies on customer inputs; customers act as suppliers for all service processes. Non‐services (such as make‐to‐stock manufacturing) rely on customer selection of outputs, payment for outputs, and occasional feedback, but production is not dependent upon inputs from individual customers. The UST reveals principles that are common to the wide range of services and provides a unifying foundation for various theories and models of service operations, such as the traditional “characteristics of services” and Customer Contact Theory. The UST has significant operational corollaries pertaining to capacity and demand management, service quality, services strategy, and so forth. The UST provides a common reference point to which services management researchers can anchor future theory‐building and theory‐testing research.     

Operational Risk in Financial Services: A Review and New Research Opportunities

We present a framework to describe and analyze operational risk in financial services from an operations management perspective, focusing in particular on process design, process management, and human behavior aspects. The financial services industry differs from other service industries in ways that affect the nature of the operational risks it is subject to. In recent decades, many books and papers have focused on operational risk in financial services; however, this literature has focused mainly on the conceptual and statistical aspects of operational risk management and not on its operational aspects. Operational risk in financial services has not received much attention from the operations management community. The framework presented here is based on the premise that operational risk in financial services can reap significant benefits from research done in the theory and practice of operations management in manufacturing industries as well as in other services industries. The objective of this study is to propose particular challenges and questions raised in the practice of operational risk management that may stimulate future research in this particular area of operations management.     

Pricing,Allocation, and Overbooking in Dynamic Service Network Competition When Demand Is Uncertain

We study the problem of combined pricing, resource allocation, and overbooking by service providers involved in dynamic noncooperative oligopolistic competition on a network that represents the relationships of the providers to one another and to their customers when service demand is uncertain. We propose, analyze, and compute solutions for a model that is more general than other models reported in the revenue management literature to date. In particular, previous models typically consider only three or four of five key revenue management features that we have purposely built into our model: (1) pricing, (2) resource allocation, (3) dynamic competition, (4) an explicit network, and (5) uncertain demand. Illustrative realizations of the abstract problem we study are those of airline revenue management and service provision by companies facing resource constraints. Under fairly general regularity conditions, we prove existence and uniqueness of a pure strategy Nash equilibrium for dynamic oligopolistic service network competition described by our model. We also show, for an appropriate notion of regularity, that competition leads to the underpricing of network services, a finding numerically illustrated by an example of intermediate size. Our proposed algorithm can be implemented using well‐known off‐the‐shelf commercial software.     

The Service Role of Outside Boards in High Tech Start‐ups: A Resource Dependency Perspective

Despite growing interest in the board of directors of entrepreneurial firms, the role of outside board members in high tech start‐ups has been largely neglected. This dearth of research is surprising since the high level of resource dependency these ventures face is likely to heighten the potential contribution outside board members can make. We argue that, for high tech start‐ups, the service role the board plays will be crucial in overcoming resource dependencies. In contrast to existing studies that tie the outside boards’ servicing role to board characteristics, we propose that greater attention needs to be paid to the resource profile of the venture. Building on resource dependency theory, we find that the extent to which the outside board members fulfil a service role is dependent on the initial human, financial and technological resource base of the entrepreneurial venture. Specifically, we find that ventures with less diversified teams, teams with lower levels of R&D experience and higher levels of financial experience and ventures earlier in the technological development process receive higher levels of support from the outside board.     

Improving Voting Systems through Service‐Operations Management

We apply service‐operations‐management concepts to improve the efficiency and equity of voting systems. Recent elections in the United States and elsewhere have been plagued by long lines, excessive waiting times, and perceptions of unfairness. We build models for the waiting lines at voting precincts using both traditional steady‐state queueing methods and simulation models. We develop solution methods to allocate voting machines optimally to precincts. Our objective functions consider both the efficiency and the equity of the voting system. We compare our allocation algorithm to several competing methods, including those used in practice. We examine several different strategies for improving voting operations on both the demand and the capacity side of voting systems, and we present a complete case study of applying our method to data from the 2008 election for Franklin County, Ohio. We conclude that our method is superior to existing polices in terms of efficiency and equity and that it is robust in terms of uncertainties regarding turnout rates on Election Day. We also suggest several operational improvements to the voting process drawn from the service‐operations literature.     

The Agency Model for Digital Goods

While digital goods industries such as entertainment, software, and publishing are growing at a rapid pace, traditional supply chain contract models have failed to evolve with the new digital economy. To illustrate, the agency model utilized by the e‐book publishing industry has recently received much negative attention brought by the U.S. Department of Justice's lawsuit against Apple, Inc. The emerging agency model in the e‐book industry works as follows: the publisher sets the price of the digital goods and the retailers who serve as agents retain a percentage of the revenue associated with a consumer purchase. The regulators claim that the agency model is hurting this industry as well as the consumer's welfare because e‐book prices have increased after the introduction of the agency model. We investigate the strategic impact of the agency model by examining a digital goods supply chain with one supplier and two competing retailers. In comparison to the benchmark wholesale model, we find that the agency model can coordinate the competing retailers by dividing the coordinated profits into a prenegotiated revenue sharing proportion. Further, we also identify the Pareto improving region whereby both the supplier and the retailers prefer the agency model to the wholesale model. Our main qualitative insight regarding the agency model still holds even when we consider the presence of the printed books in the marketplace. Thus, contrary to current press presaging the negative impact of the agency model on the e‐books industry, we find the agency model to be superior to the traditional wholesale contracts for publishers, retailers and consumers in this digital goods industry.     

金融推荐服务的渠道竞争策略研究

投资者对理财产品的认知能力有限,主要依赖外部“价值信号”形成自己对收益期望的“愿景”,从而简化投资过程。据此,本文通过构建一个新的三方博弈模型研究银行与数字金融平台之间的竞争决策,以探讨当银行有选择其销售顾问能力水平时,如何利用投资者的价值感知和对手特征来占客户对“愿景”错误理解的“便宜”,从而将这种系统性偏差转化为另一种获利来源。研究表明,金融服务强度的有效配置提升了银行的竞争力,但投资者剩余往往被完全剥夺。有趣的是,在同平台竞争中,银行增加了提供金融知识培训的额外动机,并且可能更喜欢强敌而不是弱者。此外,银行应该努力控制服务成本,以规避监管者为防止恶意竞争而禁止银行销售理财产品的风险。     

Quality‐Speed Competition in Customer‐Intensive Services with Boundedly Rational Customers

We consider a system in which two competing servers provide customer‐intensive services and the service reward is affected by the length of service time. The customers are boundedly rational and choose their service providers according to a logit model. We demonstrate that the service provider revenue function is unimodal in the service rate, its decision variable, and show that the service rate competition has a unique and stable equilibrium. We then study the price decision under three scenarios with the price determined by a revenue‐maximizing firm, a welfare‐maximizing social planner, or two servers in competition. We find that the socially optimal price, subject to the requirement that the customer actual utility must be non‐negative, is always lower than the competition equilibrium price which, in turn, is lower than the revenue‐maximizing monopoly price. However, if the customer actual utility is allowed to be negative in social optimization, the socially optimal price can be higher than the other two prices in a large market.